Settlement question tantalizes as airline merger trial nears

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Susan Walsh/AP

US Airways lead antitrust lawyer Rich Parker and other company representatives said Wednesday that both US Airways and American Airlines remain ready to fight in court — or to settle. But they would not confirm they were about to make an offer to the government.

WASHINGTON — The antitrust trial that will determine the future of Fort Worth-based American Airlines starts three weeks from Monday, and still the question everyone is asking is whether the case will settle before it begins.

That speculation intensified late Wednesday after unnamed sources told The Wall Street Journal that American and its would-be partner, US Airways, were ready to make the Justice Department an offer to end the government’s bid to block the merger.

The report of settlement talks followed comments made Wednesday morning by US Airways lead antitrust lawyer Rich Parker, who refused to comment on whether the airlines were attempting to settle the case.

“I can’t comment on any aspect of settlement or mediation,” he said. “I really can’t. It’s not the right thing to do.”

He and other company representatives said Wednesday that the airlines remain ready to fight — or to settle, should the tough-talking Justice Department drop its see-you-in-court demeanor. But they would not confirm they were about to make an offer to the government.

A New York-based spokeswoman for US Airways refused to comment on the Journal report late Wednesday. She also declined to say whether the airlines have met with the mediator the parties retained earlier this month at the request of U.S. District Judge Colleen Kollar-Kotelly.

“Any discussions about a settlement to resolve this litigation, whether internal, with the Department of Justice directly or through the mediator, would be private, and we are not going to comment on them in any way,” Annabelle Rinehart said.

In Texas, another US Airways spokesman, Ed Stewart, said the airlines had always been ready to settle — if the Justice Department would agree to reasonable terms.

“We attempted to settle the case before it was brought and have publicly indicated our willingness to consider alternative approaches to settlement,” Stewart said. “We continue to believe there ought to be a realistic possibility of settlement.”

Like others involved in the case, he declined to offer any specifics about what terms might be acceptable to the airlines.

That the airlines would prefer to settle the case has been obvious from the beginning. A settlement they can live with would be a win for the companies, since the merger would proceed.

Aggressive tone

But from the moment it filed the case Aug. 13, the Justice Department has struck an aggressive tone and has played down the chances of settlement.

On Wednesday, Justice spokeswoman Gina Tallamona also refused to say whether government lawyers had met with the mediator or with the airlines to discuss a potential settlement.

Meanwhile, preparations for the case are moving fast.

At a brief hearing Wednesday morning, Kollar-Kotelly praised the cooperation between the airlines and the government.

Despite tight deadlines and massive amounts of expedited discovery, she told the parties to expect to start as planned on Nov. 25.

“There is no reason this trial can’t start on time,” she said.

The case is fraught with risk for both sides.

Investors, employers, creditors and others are counting on a successful merger as a pathway out of bankruptcy for AMR Corp., the parent company of American Airlines.

And the Justice Department has approved a string of high-profile airline mergers in recent years, a record that has left many voices loudly calling on it to approve this one, too.

Sen. John Cornyn, R-Texas, said Wednesday he hasn’t weighed in directly with the Justice Department, but he still hopes the lawsuit is simply an effort to boost its negotiating position.

“My impression all along has been that the Department of Justice’s goal was not to block the merger but rather to require some divestment of some properties at some gates as conditions for an approval,” said Cornyn, who was previously a justice on the Texas Supreme Court and Texas attorney general.

Cornyn also said he hadn’t weighed in directly with state Attorney General Greg Abbott, who initially signed on to join the Obama administration in seeking to block the merger, but reversed course after a firestorm of criticism from Dallas-area business leaders.

Odds against deal

Still, experts have said that the aggressive and wide-ranging case brought by the Justice Department suggests a settlement may be unlikely.

The government argues that only by remaining a stand-alone company will US Airways continue to use its connecting flights as a low-cost alternative to nonstop flights operated by its larger rivals. If the smaller carrier is merged with American, those fares will go up, the government has argued.

In return, the airlines claim that only a new, larger American will have enough money and flights to compete directly with Delta and United.

And that’s something they are willing to show at trial, Parker said.

“The key issue in the case is competitive effects, and we’ll show that no matter how the market is defined that this merger is pro-competitive,” Parker said.

To make that case, the airlines have deposed executives at rival airlines across the industry and are certain to argue that the Justice Department should let this merger go through since it has approved a string of previous mergers.

Parker said it’s too soon to tell which airline executives will testify. But he said the schedule calls for 10 to 12 days for testimony.

Kollar-Kotelly said the trial will run from 9 a.m. till 5 p.m. each day.

One of the few remaining preliminary issues in dispute between the parties is how those days will be divided between the airlines and the government. The judge said she’ll decide that next month.

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